Further, selling by foreign funds in the previous session also weighed on market sentiment.
The 30-share Sensex ended down 324 points at 26,493 and the 50-share Nifty closed 109 points lower at 7,933.
Foreign funds sold index futures worth Rs 1,394 crore and Rs 74.59 crore in the cash segment on Monday, as per provisional exchange data.
However, the broader markets witnessed a sell-off after recent gains underperforming the benchmark indices. The BSE Mid-cap and Small-cap indices ended down over 3% each.
In the month to September 15, the small-cap and mid-cap index had gained 10% and 8%, respectively.
The Rupee was trading higher at 61.07 against the US dollar compared to Monday's close of 61.13 tracking Asian currencies which are trading mostly stronger versus the dollar.
Asian markets ended weak with Japanese shares ending their five-day winning streak on caution ahead of the US Federal Reserve policy meet later today.
The Nikkei ended down 0.2% at 15,911.53.
Shanghai Composite was the top loser in the region which ended down 1.9% as weak economic data continued to weigh on market sentiment. Hang Seng dropped 0.9% and Straits Times ended 1.2% lower.
European markets were trading lower ahead of the US Fed meet and political cues from Scotland. CAC-40, DAX and FTSE-100 were down 0.3-0.4%.
All other sectoral indices ended in the red. BSE Realty index was the top loser down 3.2% followed by Power, Capital Goods, Consumer Durables, Oil and Gas indices among others.
Index heavyweight Reliance Industries was the top loser down 2.3% on profit taking.
ONGC and Coal India ended down 2-3% each after the government announcement stake sale in both the state-owned
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